Apple Earnings Call Transcript: Q2 2024 (AAPL)

Listen to or read the Apple earnings call for Q2 2024 results from May 2, 2024.

Summary:
During the call, CEO Tim Cook and CFO Luca Maestri discussed Apple’s strong Q2 fiscal year 2024 earnings, highlighting revenue records in multiple countries and regions. They also discussed the company’s commitment to sustainability and innovation, as well as its financial performance during the first half of the fiscal year. In a separate conversation, speakers discussed Apple’s successful product launches and growth prospects, with a focus on the importance of innovation and connection in Apple’s retail stores. Optimism was expressed about the company’s efforts to serve the middle class and its progress in low-market regions. $110 billion was authorized for stock repurchases and the dividend on common stock is being raised by 4% to 25 cents. Cash dividends will be payable to shareholders of record on May 13, 2024, to be paid on May 16.

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Listen to a recording of the earnings call here, or read the transcript below.

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Apple ($AAPL) Q2 Fiscal Year 2024 Earnings Call Transcript

Suhasini Chandramouli, Director of Investor Relations  00:00
Hello and welcome to the Apple Q2 fiscal year 2024 earnings conference call. My name is Suhasini Chandramouli, Director of Investor Relations. Today’s call is being recorded. Speaking first today is Apple CEO Tim Cook, and he’ll be followed by CFO Luca Maestri. After that, we’ll open the call to questions from analysts. 

Please note that some of the information you’ll hear during our discussion today will consist of forward looking statements, including, without limitation those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation, and future business outlook, including the potential impact of macro economic conditions on the company’s business and results of operations. These statements involve risks and uncertainties that may cause actual results for trends to differ materially from our forecast. 

For more information, please refer to the risk factors discussed in Apple’s most recently filed annual report on form 10k and the form 8k filed with the SEC today along with the associated press release, Apple assumes no obligation to update any forward looking statements, which speak only as of the date they are made. I’d now like to turn the call over to Tim for introductory remarks.

Tim Cook, CEO  01:24
Thank you, Suhasini. Good afternoon, everyone. And thanks for joining the call. 

Today, Apple is reporting revenue of $90.8 billion and an EPS record of $1.53 for the March quarter. We set revenue records in more than a dozen countries and regions. These include among others March quarter records in Latin America and the Middle East, as well as Canada, India, Spain and Turkey. We also achieved an all time revenue record in Indonesia, one of the many markets where we continue to see so much potential in services we set an all time revenue record up 14% Over the past year. 

Keep in mind, as we described on the last call in the March quarter a year ago, we were able to replenish iPhone channel inventory and fulfill significant Pennock demand from the December quarter. COVID related supply disruptions on the iPhone 14 pro and 14 Promax. We estimate this one time impact added close to $5 billion to the March quarter revenue last year. If we remove this from last year’s results, our March quarter total company revenue this year would have grown despite the same pack. We were still able to deliver the records I described. 

Of course this past quarter we were thrilled to launch Apple vision Pro and it has been so wonderful to hear from people who now get to experience the magic of spatial computing. They describe the impossible becoming possible right before their eyes and they share their amazement and their emotions about what they can do now. Whether it’s reliving their most treasured memories, or having a movie theater experience right in their living room. It’s also great to see the enthusiasm from the enterprise market. 

For example, more than half of the Fortune 100 companies have already bought apple vision pro units and are exploring innovative ways to use it to do things that weren’t possible before. And this is just the beginning. Looking ahead, we’re getting ready for an exciting product announcement next week that we think our customers will love. And next month, we have our Worldwide Developers Conference, which has generated enormous enthusiasm from our developers. We can’t wait to reveal what we have in store. 

We continue to feel very bullish about our opportunity and generative AI. We are making significant investments and we’re looking forward to sharing some very exciting things with our customers soon. We believe in the transformative power and promise of AI and we believe we have advantages that will differentiate us in this new era, including Apple’s unique combination of seamless hardware, software and services integration, groundbreaking Apple silicon, with our industry leading neural engines, and our unwavering focus on privacy which underpins everything we create. 

As we push innovation forward, we continue to manage thoughtfully and deliberately through an uneven macroeconomic environment and remain focused on putting our users at the center of everything we do. Now let’s turn to our results for the March quarter across each product category, beginning with iPhone. iPhone revenue for the March quarter was $46 billion down 10% year over year. We faced a difficult compare over the previous year due to the $5 billion impact that I mentioned earlier. However, we still saw growth on iPhone in some markets, including Mainland China. And according to Kantar, during the quarter the two best selling smartphones in urban China are the iPhone 15 and iPhone 15 Promax. 

I was in China recently where I had the chance to meet with developers and creators who are doing remarkable things with iPhone. And just a couple of weeks ago, I visited Vietnam, Indonesia and Singapore, where it was incredible to see all the ways customers and communities are using our products and services to do amazing things. everywhere I travel, people have such a great affinity for Apple, and it’s one of the many reasons I’m so optimistic about the future. 

Turning to Mac: March quarter revenue was $7.5 billion, 4% from a year ago. We had an amazing launch in early March. With the new 13 and 15 inch MacBook Air. The world’s most popular laptop is the best consumer laptop for AI with breakthrough performance of the M three chip and it’s even more powerful neural engine. Whether it’s an entrepreneur starting a new business or a college student finishing their degree. Users depend on the power and portability of MacBook Air to take them places they couldn’t have gone without it. 

And iPad. revenue for the March quarter was $5.6 billion 17% Lower year over year due to a difficult compare with the momentum following the launch of into iPad Pro and the 10th generation iPad last fiscal year. iPad continues to stand apart for its versatility, power and performance for video editors, music makers and creatives. of all kinds. iPad is empowering users to do more than they ever could with a tablet. Across wearables home and accessories March quarter revenue was $7.9 billion down 10% from a year ago due to a difficult launch compare on watch and air pods. 

Apple Watch is helping runners go the extra mile on their wellness journeys, keeping hikers on course with the latest navigation capabilities and watch os 10 and enabling users of all fitness levels to live a healthier day. Across our watch lineup, we’re harnessing AI and machine learning to power life saving features like irregular rhythm notifications and fall detection. I often hear about how much these features mean to users and their loved ones. And I’m thankful that so many people are able to get help in their time of greatest need. 

As I shared earlier we set an all time revenue record in services with $23.9 billion, up 14% year over year. We also achieved all time revenue records across several categories in geographic segments. 

Audiences are tuning in on screens large and small and spatial and are enjoying Apple TV plus originals like palm oil and sugar. And we have some incredible theatrical releases coming this year, including Wolf’s which reunites George Clooney and Brad Pitt Apple TV plus productions continue to be celebrated as major awards contenders. Since launch Apple TV plus productions have earned more than 2100 Award nominations and 480 wins. 

Meanwhile, we’re enhancing the live sports experience with a new iPhone app Apple sports. This free app allows fans to follow their favorite teams and leagues with real time scores, stats and more. Apple sports is the perfect companion for MLS season pass subscribers turning to retail, our stores continue to be vital spaces for connection and innovation. I was delighted to be in Shanghai for the opening of our latest flagship store. The energy and enthusiasm for our customers was truly something to behold and across the United States, our incredible retail teams have been sharing vision pro demos with customers, delighting them with a profound and emotional experience of using it for the very first time. Everywhere we operate in everything we do, we’re guided by our mission to enrich users lives and leave the world better than we found it, whether we’re making Apple podcasts more accessible with a new transcripts feature or helping to safeguard iMessage users’ privacy with new protections that can defend against advances in quantum computing.

Our environmental work is another great example of how innovation in our values come together as we work toward our goal of being carbon neutral across all of our products by 2030. We are proud of how we’ve been able to innovate and do more for our customers. While taking less from the planet. Since 2015, Apple has cut our overall emissions by more than half while revenue grew nearly 65% During that same time period. And we’re now using more recycled materials in our products than ever before. Earlier this spring, we launched our first ever product to use 50% recycled materials with a new M three powered MacBook Air. 

We’re also investing in new solar and wind power in the US and Europe, both to power our growing operations and our users devices. And we’re working with partners in India and the US to replenish 100% of the water we use in places that need it most with a goal of delivering billions of gallons of water benefits over the next two decades. Through our restore fund. Apple has committed $200 million to nature based carbon removal projects. And last month, we welcome to supplier partners as new investors who will together invest an additional $80 million in the fund. 

Whether we’re enriching lives of users across the globe, are doing our part to be a force for good in the world. We do everything with a deep sense of purpose at Apple, and I’m proud of the impact we’ve already made at the halfway point in a year of us of unprecedented innovation? I couldn’t be more excited for the future we have ahead of us, driven by the imagination and innovation, our teams and the enduring importance of our products and services in people’s lives. With that, I’ll turn it over to Luke.  

Luca Maestri, CFO  11:57
Thank you, Tim. And good afternoon everyone. Revenue for the March quarter was $90.8 billion, down 4% from last year. Foreign exchange had a negative year over year impact of 140 basis points on our results. Products revenue was $66.9 billion, down 10% year over year due to the challenging compare an iPhone that Tim described earlier, which was partially offset by strength from and thanks to our unparalleled customer satisfaction and loyalty and a high number of customers who are new to our products. Our installed base of active devices reached an all time high across all products and all geographic segments. Services revenues had an all time record of 23 point 9 billion up 14% year over year, with record performance in both developed and emerging market. 

Company gross margin was 46.6% up 70 basis points sequentially, driven by cost savings and favorable mix to services partially offset by leverage. Products gross margin was 36.6% down 280 basis points sequentially, primarily driven by seasonal loss of leverage and makes partially offset by favorable costs. Surfaces gross margin was 74.6%. Up 180 basis points from last quarter due to a more favorable mix. Operating expenses of $14.4 billion were at the midpoint of the guidance range with provided an app 5% year over year. Net income was $23.6 billion diluted EPS was $1.53 and a March quarter record and Operating cash flow was thrown at $22.7 billion. 

Let me now provide detail for each of our revenue categories. I found revenue was $46 billion down 10% year over year due to the almost $5 billion impact from a year ago that Tim described earlier. Adjusting for this one time in iPhone revenue will be roughly flat last year. Our iPhone active installed base grew to a new all time high in total, and in every geographic segment. And during the March quarter. We saw many iPhone models as the top selling smartphones around the world. In fact, according to a survey from cantar an iPhone was the top selling model in the US, urban China, Australia, the UK, France, Germany and Japan and the iPhone 15 family continues to be very popular with customers 451 research recently measured customer satisfaction at 99% in the US market revenues of 7.5 billion up 4% year over year. 

Driven by the strength of our new macbook air powered by the entry chip. Customers are loving the incredible AI performance of the latest MacBook Air and MacBook Pro models. And our match installed base reached an all time high with half of our Macbook Air buyers during the quarter being new to Mac. Also customer satisfaction for Mac was recently reported 96% In the US iPad generated $5.6 billion in revenue down 17% year over year. iPad continues to face a challenging compare against the launch of the end to iPad Pro and iPad 10 generation from last year. 

At the same time, the iPad installed base has continued to grow and is at an all time high as over half of the customers who purchase iPads during the quarter were new to the product. In addition, the latest reports from 4.1 research indicated customer satisfaction of 96% for iPad in the US wearables home and accessories revenue was seven point 9,000,000,010% year over year due to a difficult launch compare. Last year we had the continued benefit from the launches of the airport’s pro second generation, the watch SE and the first watch Ultra Apple Watch continues to attract new customers with almost two thirds of customers purchasing an Apple watch during the quarter being new to the product. 

Sending the Apple Watch installed base to a new all time high. And customer satisfaction was recently measured a 95% in the US. In services as I mentioned, total revenue reached an all time record of $23.9 billion growing 14% year over year, with our installed base of active devices continuing to grow at a nice pace. This provides a strong foundation for the future growth of the services business as we continue to see increased customer engagement with our ecosystem. Both transacting accounts and paid accounts reached a new all time high with paid accounts growing double digits year over year and Paid Subscriptions showed strong double digit growth. 

We have well over 1 billion Pay subscriptions across the services on our platform more than double the number that we had only four years ago. We continue to improve the breadth and quality of our current services from creating new games on arcade and great new shows on TV plus, to launching additional countries and partners for Apple Bay. 

Turning to enterprise, our customers continue to invest in Apple products to drive productivity and innovation. We see more and more enterprise customers embracing the Mac. In healthcare, Epic Systems. The world’s largest electronic medical record provider recently launched its native app for the Mac, making it easier for healthcare organizations like Emory health, to transition 1000s of PCs to the Mac, for clinical use. And since the launch of Vision Pro last quarter, many leading enterprise customers have been investing in this amazing new product to bring spatial computing apps and experiences to life. We are seeing so many compelling use cases from aircraft engine maintenance training at klm. airlines to real time team collaboration for racing at Porsche to immersive kitchen design at Lowe’s. We couldn’t be more excited about the spatial computing opportunity in enterprise. 

Taking a quick step back when we look at our performance during the first half of our fiscal year, total company revenue was roughly flat to the prior year. In spite of having one less week of sales during the period and some foreign exchange headwinds. We were particularly pleased with our strong momentum in emerging markets. As we said first half revenue records in several countries and regions including Latin America, the Middle East, India, Indonesia, the Philippines and Turkey. These results, coupled with double digit growth in services has strong levels of gross margin, throw a first half diluted EPS record of $3.71 up 9% from last year. 

Let me now turn to our cash position and capital return program. We ended the quarter with 162 billion in cash and marketable securities. We repaid 3.2 billion in maturing that, and commercial paper was unchanged sequentially, leaving us with total debt of 105 billion. As a result, net cash was 58 billion at the end of the quarter during the quarter, to return over 27 billion to shareholders, including $3.7 billion in dividends and equivalents and $23.5 billion through open market repurchases of 130 million Apple shares. Given the continued confidence we have in our business now and into the future. 

Our board has authorized today an additional $110 billion for share repurchases as we maintain our goal of getting to net cash neutral over time. We’re also raising our dividend by 4% to 25 cents, a share of common stock and we continue to plan for annual increases in the dividend going forward. As we’ve done for the last 12 years. This cash dividend will be payable on May 16 2024 to shareholders of record as of May 13 2024. 

As we move ahead into the June quarter, I’d like to review our outlook which includes the types of forward looking information that’s wasini referred to at the beginning of the caller we’re providing today assumes that the macroeconomic Outlook doesn’t worsen from what we are projecting today for the current quarter. We expect our June quarter total company revenue to grow low single digits year over year, in spite of a foreign exchange headwind of about two and a half percentage points. 

We expect our services business to grow double digits at a rate similar to the growth we reported for the first half of the fiscal year. And we expect iPad revenue to grow double digits. We expect gross margin to be between 45 and a half percent to 46 and a half percent. We expect OPEX to be between $14.3 and $14.5 billion we expect it to be around 50 million, excluding any potential impact from the mark to market of minority investment and our tax rate to be around 16%. With that, let’s open the call to questions.

Suhasini Chandramouli, Director of Investor Relations  22:00
Thank you. We ask that you limit yourself to two questions. Operator, may we have the first question please.

Operator
Certainly, we will go ahead and take our first question from Mike Ng with Goldman Sachs. Please go ahead.

Mike Ng, Goldman Sachs
Hey, good afternoon. Thank you very much for the question. I have to first I’ll ask about the June quarter guidance. You know the revenue outlook for low single digit growth. I was wondering if you could run through some of the product assumptions you know iPhone like what kind of gives you confidence around that. And then on the service momentum, what was better than expected in the quarter and then I just have a quick follow up.

Luca Maestri, CFO
Hey, Mike, it’s Luca. On the outlook, what we said is, we expect to grow low single digits in total for the company. We expect services to grow double digits at a rate that is similar to what we’ve done in the first half of our fiscal year. And we also mentioned that iPad should draw double digits. This is the color that we’re providing for the June quarter in services. We’ve seen very strong performance across the board we’ve mentioned you know we’ve had records in several categories in several geographic segments is very broad based, you know, our subscription business is going well. transacting accounts and paid accounts are throwing paid accounts are growing double digits. And also we’ve seen really strong performance both in developed and emerging markets. So very pleased with the way the services business is going.

Mike Ng, Goldman Sachs
Great. Thank you. And I wanted to ask about, you know, as Apple leans more to AI and generative AI should we expect any changes to the historical catbacks Caden, that we’ve seen in the last few years and about 10 to $11 billion per year, or any changes to how we we may have historically thought about the split between tooling data center and facilities? Thank you very much.

Luca Maestri, CFO
Yeah. We are obviously very excited about the opportunity to join AI. We obviously are pushing very hard on innovation on every front and we’ve been doing that for many, many years. Just during the last five years, we spent more than $100 billion dollars in research and development.

As you know, on the CAPEX front, we have a bit of a hybrid model where we make some of the investments ourselves in other cases. We share them with our suppliers and partners. On the manufacturing side. We purchase some of the tools manufacturing equipment, in some of the cases our suppliers make the investment. On the end, we do something similar on the data center. side we have our own data center capacity and then we use capacity from third parties. It’s a model that has worked well for us historically, and we plan to continue along the same lines going forward.

Suhasini Chandramouli, Director of Investor Relations
Thank you, Mike. Operator, can we have the next question, please?

Operator  22:45
Our next question is from Wamsi Moen with Bank of America. Please go ahead.

Wamsi Moen, Bank of America  22:51
Yes, thank you so much. Tim, can you talk about the implications to apple from the changes driven by UDM you had to open up third party app stores, clearly disposes on security risks on the one hand, which can value the experience of both the lower payments from developers to Apple. What are you seeing developers choose in these early days and consumers choose in terms of these third party app stores and have a funnel?

Tim Cook, CEO  23:18
It’s really too early to answer the question we just implemented in March, as you probably know, in the European Union, the alternate app stores and alternate billing, et cetera. So we’re, you know, we’re focused on complying while mitigating the impacts to user privacy and security that you mentioned. And so that that’s our focus.

Wamsi Moen, Bank of America  23:48
Okay, thank you, Tim. And Luca, I was wondering if you were on the product, gross margin, the sequential step down you know, that makes sense elaborate any more color on the mix, if you could share customers are at all starting to mix down and across product lines, or is this more mixed across product? Just trying to get some color, health or behavior, some other broader inflationary pressures. Thank you so much.

Luca Maestri, CFO  24:16
On a sequential basis, yes, we were down it’s primarily the fact that we are slightly different mix of products than the previous one. Obviously, leverage plays a big role as we move from the holiday quarter into a more typical quarter. So I will say, primary leverage in a different mix of products. We haven’t seen anything different in terms within the product categories. We haven’t seen, you know, anything particular. Thanks so much.

Suhasini Chandramouli, Director of Investor Relations  24:52
Thanks Wamsi. We’ll take the next question, please.

Operator  24:59
Our next question is from Eric Woodring with Morgan Stanley. Please go ahead.

Eric Woodring, Morgan Stanley  25:05
Great, thanks so much for taking my questions. My first one, Tim, you’ve obviously mentioned your interest in generative AI multiple times. I’m just curious how Apple is thinking about the different ways in which you can monetize this technology because historically, software upgrades haven’t been a big, a big factor in driving product. cycles. And so can AI be potentially different? How could that impact replacement cycles? Is there any services angle you’d be thinking any, any early color that you can share on that and then have a follow up, please?

Tim Cook, CEO  25:36
I don’t want to get in front of our announcements. Obviously. I would just say that we see generative AI is a very key opportunity across our products. And we believe that we have advantages that set us apart there. And we’ll be talking more about it. As we go through the weeks ahead.

Eric Woodring, Morgan Stanley  26:03
Thank you. And then Luca, maybe you just follow up on one of these comments or question. You know, there’s a broad concern about the headwinds that rising commodity costs have on your products gross margins. wondering if you could just clarify for us if we take a step back and look at all of the components and commodities that go into your products kind of collectively, you know, are we are you seeing these costs rising? Are they falling? You know, what tools do you have to try to help mitigate some rising costs if at all rising costs if at all? Thank you so much.

Luca Maestri, CFO  26:36
Yes. I mean, during the last quarter commodity costs and in general component costs that behave favorably to us. On the memory front, prices are starting to go up. They’ve gone up slightly during the the March quarter but in general, I think it’s been, you know, a period not only this quarter, but the last several quarters where, you know, commodities have behaved well for us. commodities go in cycles. And so there’s obviously always that to keep in mind that we are starting from a very high level of gross margins. You know, we recorded 46.6%, which is something that we haven’t seen, you know, a company in decades. And so we’re starting from a good point. As you know, we try to buy ahead, when you know, the cycles are favorable to us. So, we will try to mitigate if there are headwinds, but in general, we feel particularly for this cycle. We are in good shape. Thank you so much.

Suhasini Chandramouli, Director of Investor Relations  27:50
Great. Thank you, Eric. Operator, we’ll take the next question, please.

Operator  27:56
Our next question is from Ben Reitzes from Melius.

Ben Reitzes, Melius  28:01

Hey, thanks for the question. I was wondering if I could ask the China question again. You know, is there any more from your visit there that gives us confidence that you’ve reached the bottom there and that it’s turning? I know you’ve been you’ve continued to be confident there in the long term, just wondering if there was any color as to when you think that the tide turns there. Thanks a lot, and I will follow up.

Tim Cook, CEO  28:31
If you look at our results, in Q2, for Greater China, we were down paid. That’s an acceleration from the previous quarter. In Q1 the primary driver of the acceleration was iPhone. And if you if you then look at iPhone within mainland China, we grew on a reported basis that’s before any kind of normalization for the supply destruction that we mentioned earlier. And if you look at the the top selling smartphones that the top two in China are our iPhones. And while I was there, it was a great visit. And we opened a new store and in Shanghai and the reception was very warm and highly energetic and so I I left there having a fantastic trip and enjoyed being there. And so I I maintain a great view of China in the long term. I don’t know how each and every quarter goes each and every week, but over the long haul, I have a very positive viewpoint.

Ben Reitzes, Melius  30:01
Okay, hey, Thanks, Tim. My follow up you know, I want to ask this carefully, though. It’s there’s a fear out there that you know, you may lose some traffic acquisition revenue. And I was wondering if you thought, you know, AI from big picture, and it doesn’t have to be, you know, on a long term basis, I mean, big picture of AI as an opportunity for you to you know, continue to monetize your mobile real estate. Just how you how maybe investors can think about that from a big picture just given. That’s been one of the concerns. That’s potentially been an overhang, of course, due to a lot of news in the media around some of the legal cases. And I was wondering if there’s just a big picture, color you could give that makes us kind of think about it better and your ability to sort of continue to monetize that real estate. Thanks a lot.

Tim Cook, CEO  30:53
I think both are big opportunities for us across our province and we’ll talk more about it in in the coming weeks. I think there are numerous ways out there that are hurting us, and we think that we were well positioned.

Suhasini Chandramouli, Director of Investor Relations  31:18
Thanks, Tim. Yep. Thanks, Ben. Can we have the next question please?

Operator  31:25
Our next question is from Krish Shankar with TD Cowen. Please go ahead.

Krish Shankar, TD Cowen  31:31
Thanks for taking my question. Again, sorry to beat the AI. But then I know you don’t want to like reveal a lot. But I’m just kind of curious because last quarter, you spoke about how you’re getting traction. Enterprise. Is the AI going to be both consumer and enterprise or is it going to be one after the other? Any color would be helpful and then I’ll follow up with Luca.Tim Cook, CEO  31:52
Our focus on enterprise has been and you know, through the quarter and the quarters that preceded it on selling iPhones and iPads and Macs and we recently added Vision Pro to that and we’re thrilled with it. See there in terms of interest from big companies and buying some to explore ways they can use it and so I see enormous opportunity in the enterprise. I wouldn’t want to Cavin that to AI only I think there’s a great opportunity for us around the world and enterprise.

Krish Shankar, TD Cowen  32:41

Got it very helpful. And then for Luca I’m kind of curious on the macro environment on the hardware side is a bias towards like, standard iPhone versus the Pro model. The reason I’m asking the question is that there’s a week of consumer spending environment, yet you’re still growing and has amazing gross margin from the standard like quite a certain order making.

Luca Maestri, CFO  33:08
I’m not sure I fully understand the question but in general, what we’re seeing on the product side, we continue to see a lot of interest at the top of the range of our products. And I think it’s a combination of consumers wanting to purchase the best product that we offer into different categories and our ability to make those purchases more affordable. Over time. We’ve introduced several financing solutions from installment plans to trading programs that reduce the affordability threshold and therefore customers tend to buy want to buy at the top of the range that is very valuable for us in developed markets, but particularly in emerging markets where the affordability issues are more pronounced, but in general over the last several years and that is also reflected in our gross margins over the last several years we’ve seen this trend which we think is pretty sustainable.  Thank you

Krish Shankar, TD Cowen  34:15
Thank you very much.

Suhasini Chandramouli, Director of Investor Relations  34:16
Our next question is from Amit Daryanani from Evercore Go ahead.

Amit Daryanani, Evercore  34:27
Basically my question to you as well. It gets full stop on capital allocation. You focus on about $58 billion of net cash right now. And you think about eventually get into this net cash neutral target. Do you think at some point Apple would be open to taking on leverage on the balance sheet and continue to buyback program? Or is it more like once you get to the neutral position? It’s going to be about returning free cash flow. How do you think about leverage on your balance sheet over time and what’s the leverage you think you’d be comfortable taking on?

Luca Maestri, CFO  34:59
I would say one step at a time. We have put out this target of getting to net cash neutral several years ago and we’re working very hard to get there. Our cash flow generation has been very strong over the years, particularly the last few years. And so as you’ve seen this year, we’ve increased the amount that we’re allocating to the buyback. For the last couple of years we were doing $90 billion now we’re doing $110 billion. So let’s get there first. It’s gonna take a while still, and then when we get there, we’re gonna reassess and see what is the optimal capital structure for the company at that point in time. Obviously, there’s going to be a number of considerations that we will need to look at when we get there.

Amit Daryanani, Evercore  35:51
Or an opportunity what we’re trying anyway if I go back to this Tyler discussion about common ground growth in Iceland, and mensen, constantly notable, just step out of it, these numbers are still declining at these greater time on the year we are based on aggregate. What do you think from a macro basis in China, and then at least the annual decline or you’re really planning on seeing more macro driven or more competent have driven over that will be helpful. 

Tim Cook, CEO  36:19
Yeah, I can only tell you what we’re seeing. And so I don’t want to present myself as a economist, I’ll steer clear of that. From what we saw was an acceleration from Q1, and it was driven by iPhone and iPhone in mainland China before we adjust for this 5 billion impact that we talked about earlier. Did grow. That means the other products didn’t fare as well. And so we clearly have worked there to do. I think it has been and is through last quarter. The most competitive market in the world. And I so I you know, wouldn’t say anything other than that. I’ve said that before and I I I believe that it was last quarter as well. And but if you step back from the 90 day cycle, what I see is a lot of people moving into the middle class a we tried to serve customers very well there and have a lot of happy customers and you can kind of see that in the latest store opening over there. And so I I continue to feel very optimistic.

Suhasini Chandramouli, Director of Investor Relations  38:02
Thanks, Amit. Operator, we’ll take the next question, please.

Operator  38:08
Our next question is from David Vogt with UBS. Please go ahead.

David Vogt, UBS  38:13
Great. Thanks, guys for taking my question. And I’m gonna roll the two together. So you guys have a vote. So Luca, obviously trying to parse through the outlook for the June quarter. And just based on the quick math, it looks like you know, all things being equal, given what you said the iPhone businesses can be done in mid single digits again in the June quarter. If that’s the case, and maybe this is for Tim, you know, obviously how are you thinking about the competitive landscape in the context of what you just said, maybe outside of China? And what changes sort of, you know, the consumer demand or receptivity to new devices? Because we’ve been in this malaise for a while. Is it really this AI initiative that a lot of companies are pursuing and do you think that change is sort of a demand drivers going forward? Or is it just really more of a timing issue in terms of the replacement cycles a little bit long in the tooth, and we see a bit of an upgrade cycle at some point maybe later this year into next year.

Tim Cook, CEO  39:05
I do see a key opportunity, as I’ve mentioned before, with generative AI, with all of our devices are the vast majority of our devices. And so I think that if you look out that’s not within the next quarter or so, and we don’t guide at the product level, but I I’m extremely optimistic and so that that’s kind of how I view it in terms of that I’ll let Luca comment on the the outlook portion of it. I think if you step back on iPhone, and you make this adjustment from the previous year, our our q2 results would be flattish on iPhone and so that’s how we performed in q2.

Luca Maestri, CFO  40:14
And you know, on the outlook, I repeat what we’re for, and this is the color that we’re providing for the quarter. We do expect to grow in total, low single digits. We do expect the services to grow double digits and we expect iPad to grow double digits for the rest. I’ll let you make assumptions and then we will report three months from now. Great, thanks, guys.

Suhasini Chandramouli, Director of Investor Relations  40:37
Thanks, David. Operator will take the next question, please.

Operator  40:47
Our next question is from Samik Chatterjee with JPMorgan. Please go ahead.

Samik Chatterjee, JPMorgan  40:53
Hi, thanks for taking the question. And I have a couple as well. Maybe for the first one. Your services growth accelerated from 11% growth 14%. If you can sort of dig into the drivers of where or which parts of services did you really see that acceleration and why it isn’t a bit more sustainable as we think about the next quarter because I believe you’re getting more tools of the first half of the year for the next quarter. So just curious of what would the drivers and why not have it a bit more sustainably improve as we go through the remainder of the fall? Thank you.

Luca Maestri, CFO  41:29
So a number of things on services. First of all, the overall performance was very strong. As I said earlier, all time records in both developed and emerging markets. So we see our services do well across the world. Records in many of our services categories. There are some categories that are growing very fast also because they are relatively smaller in the scheme of our services business like Cloud video payment services. You know, those all set all time revenue records. So we feel very good about the progress that we’re making in services. As we go forward. I point out that if you look at our growth rates a year ago, they improved during the course of the fiscal year last year so the comps for the services business become a bit more challenging as we go through the year. But in general, as I mentioned, we still expect to grow double digits in the June quarter at a rate that is very similar to what we’ve done in the first half.

Samik Chatterjee, JPMorgan  42:44
And from my follow up if I can ask you more specifically with the Indian market have you continued to make new records in terms of revenue in that market? How much of the momentum you’re seeing would you associate with retail strategy in that market retail expansion relative to maybe some of the supply
chains or the some manufacturing changes or some strategy you’ve undergone or taken in that market itself? Any thoughts around that could be helpful?

Tim Cook, CEO  43:13
Sure. We did grow strong digit. And so we were very, very pleased about it. We was a new market quarter revenue record for us. As you know, as I’ve said before, I see it as incredibly exciting market and it’s a major focus for us in terms of the operational side that our supply chain side, we are producing there from pragmatic point of view you need to produce there to be competitive and, and so yes there the two things are linked from from that point. of view, but we have both operational things going on and we have go to market initiatives going on we just opened a couple of stores as last year as you know, and enormous opportunity there. 

We’re continuing to expand our channels, and also working on the developer ecosystem as well. And we’ve been very pleased that there’s a rapidly growing base of developers there and so we’re working all of the entire ecosystem from developer to the market to operations, the whole thing, and I just I could not be more excited and enthusiastic. about it. Thank you.

Suhasini Chandramouli, Director of Investor Relations  44:57
Thanks for the question Samik. Operator will have the next question please.

Operator  45:03
Our next question is from Aaron Rakers with Wells Fargo. Please go ahead.

Aaron Rakers, Wells Fargo  45:13
Yes, thanks for taking the questions. And I think I have to have to as well about like everybody else. I I guess I’m gonna go back to the China question, I guess, at a high level. The simple question is, when we look at the data points that have been repeatedly recorded throughout the course of this quarter, I’m curious to know, what are we missing? Like, where do you think people are missing? You know, Apple’s iPhone traction within the China market just at a high level, you know, given the data points that were reported throughout the course of the last quarter.

Tim Cook, CEO  45:48
I can’t address the data points. I can only address when our results and you know, we did accelerate last quarter, and the iPhone grew in mainland China. So that’s what the results were. I can’t bridge two numbers we didn’t come up with.

Aaron Rakers, Wells Fargo  46:18
A quick follow up. I know you guys haven’t talked about this quantified it in quite some time, but I’m curious to how we would characterize the channel inventory dynamics are for sure.

Tim Cook, CEO  46:31
For the March quarter, we decreased channel inventory during the quarter. We usually decrease channel inventory during the Q2 timeframe. So that’s not unusual. And we’re very comfortable with the overall channel inventory. Thank you.

Suhasini Chandramouli, Director of Investor Relations  46:57
Thank you, Aaron. Operator, we’ll take the next question, please. Our next question is from Richard Kramer with Arete Research, please go ahead.

Richard Kramer, Arete Research  47:13
Thanks very much. I’m not gonna ask about China but you regularly call out in many other emerging markets. So it’s Apple approaching a point where all those other emerging markets in aggregate might cross over to become larger than your current 70 billion Greater China segments and, and maybe investors could look at that for driving growth for the wider business and I have a follow up for Luca.

Luca Maestri, CFO  47:40
I think, Richard, you’re asking a really interesting question when we were looking at something similar recently. Obviously, China is by far the largest emerging market that we have. But when we started looking at places like India, like Saudi like Mexico, Turkey, of course, Brazil and Mexico and Indonesia. The numbers are getting large and we’re very happy because these are markets where our market share is low. The populations are growing. And our products are really making a lot of progress with in those markets. The level of excitement for the brand is very high. Tim was in Southeast Asia recently and the level of excitement is incredibly high. So it is very good for us. And then certainly the numbers are getting larger all the time. And so the gap, as you compare it to the numbers in China is reducing and hopefully that trajectory continues.

Richard Kramer, Arete Research  49:05
Okay, and then the follow up maybe for either of you. I mean you’re coming up on four years from what was incredibly popular iPhone 12 cycle. And, you know, given you’re struggling to reduce your net, your reach your net neutral cast position and your margins are sort of near highs. Can you see ways to deploy capital more to prefer replacement demand? In your installed base either with greater device financing, more investment in marketing, more promotions? Do you feel like you need that to produce those sort of margins? Or is it more important to spur growth with replacement?

Tim Cook, CEO  49:42
I think innovations are the upgrade cycle. That’s one thing. Of course, there’s economic factors as well that that play in there and what kind of offerings there are from our carrier partners. So there’s a number of variables there. But we work all of those. And, you know, we price our products for the value that we’re delivering. And so that’s how we look at an end if I can add to Gamescom.

Luca Maestri, CFO  50:21
And Richard, for one of the things that when you look over the long arc of time that maybe he’s not fully understood is that we’ve gone through a long period of very strong dollar and what that means given that our company sells more than 60% of our revenue is outside the United States. The demand for our products in those markets is stronger than the results we report just because of the translation of those local currencies into dollars. Right and so that is something to keep in mind as you look at our results right. And so we are making all the investments that are needed. And Tim has talked about innovation, obviously, we made a lot of progress with financing solutions with trading programs and so on and we will continue to make all those investments.

Suhasini Chandramouli, Director of Investor Relations  51:17
Thank you, Richard. Operator, can we take our last question please?

Operator  51:26
All right, next question is from Atif Malik with Citi. Please go ahead.

Atif Malik, Citi  51:32
Hi, thank you for taking my questions. I have two questions as well. For enterprise, what are some of the top two or three use cases on vision pro you’re hearing most excitement? And then I’ll follow up with Luca.

Tim Cook, CEO  51:50
You know the great thing is I’m hearing about so many of them. I wouldn’t say that one has emerged as the top right now the most impressive thing is that similar to the way people use a Mac you use it for everything people are using it for many different things in enterprise that varies from field service, to trucking to healthcare related things like preparing a doctor for pre op surgery or advantage and instead, it’s a command and control centers. So it’s an enormous number of different verticals and you know our focus is on a growing that ecosystem and getting more apps and more and more enterprises engaged. And the event that we had recently, I can’t overstate the enthusiasm in the room. It was extraordinary. And so we’re off to a good start I think with enterprise.

Atif Malik, Citi 53:05
And then Luca, I believe you mentioned that for the March quarter that the commodity pricing environment was favorable. Can you talk about what you’re assuming for commodity pricing or memory and Tetra for the June quarter and maybe for the full year?  

Luca Maestri, CFO  53:24
We provide guidance just for the for the current quarter. So I’ll tell you about the guidance we are guiding to again to a very high level of gross margins 45 and a half to 46 and a half percent within that guidance. We expect a slight headwind and not a very large one but a slight headwind and the same applies for an exchange, for exchange will have a negative impact sequentially about 30 basis points.

Suhasini Chandramouli, Director of Investor Relations  54:02
Thank you Atif. A replay of today’s call will be available for two weeks on Apple podcasts as a webcast on apple.com/investor and via telephone the number for the telephone replay is 866-583-1035

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